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We encounter regression to the mean almost every day, but almost nobody understands it.

From sporting prowess to investment success, and jobseeking to KPIs, it crops up pretty much whenever we see an imperfect measure of what we are trying to measure.

Like using the results of a single test as a measure of your ability in that field.

Suppose your average score on history tests is 80 per cent. That doesn't mean you'll get 80 per cent correct on every test — you will know the answers to more than 80 per cent of the questions on some tests and to less than 80 per cent on others. A person's score on any single test is an imperfect measure of ability.

And someone whose test score on a single test is high relative to the other people who took the test probably also scored high relative to his or her own ability, ie they got lucky.

So someone who scores in the top 10 per cent on a single test could have a lower ability but have done unusually well, or could be someone of higher ability who did poorly. The former is more likely simply because there are more people with ability in the lower 90 per cent. And so it's more likely that if they sit a second test, their score will be lower.

Similarly, a person who scores well below average is likely to have had an off day, and should anticipate scoring somewhat higher on later tests.

This tendency of people who score far from the mean to score closer to the mean on a second test is an example of regression toward the mean. And regression is by no means confined to test results.

Height is an imperfect measure of the genetic influences that we inherit from our parents and pass on to our children. A person who is six-feet, six-inches tall might have six-foot genes and have experienced positive environmental influences or might have seven-foot genes and had negative environmental factors. The former is more likely, simply because there are many more people with six-foot genes than with seven-foot genes. So it's not surprising that we see regression in height — unusually tall parents tend to have somewhat shorter children, while the reverse is true of unusually short parents.

Investment success is an imperfect measure of investor prowess. Therefore, we see regression in that those investment advisors who make the best stock picks in any given year will, on average, be more mediocre the next year.

Regression goes further — to the heady worlds of sport, recruitment and love to name a few.

Choking champions

Many sports fans are convinced that champions choke — that athletes who achieve something exceptional usually have disappointing letdowns afterward. Evidently, people work extraordinarily hard to achieve extraordinary things, but once they are on top, their fear of failing causes the failure they fear. The same seems to be true in many professions.

The most famous example is the Sports Illustrated magazine cover jinx. After Oklahoma College won 47 straight football games, Sports Illustrated's cover story was, "Why Oklahoma is Unbeatable." Oklahoma lost its next game, 28-21, to Notre Dame. After this debacle, people started noticing that athletes who appear on the cover of Sports Illustrated are evidently jinxed in that they do not perform as well afterward. In 2002, Sports Illustrated ran a cover story on the jinx with a picture of a black cat and the cute caption "The Cover No One Would Pose For."

Sorry to all you true believers out there, but it's just regression toward the mean again.

Athletic performances are an imperfect measure of skills and consequently regress toward the mean. Regression is caused by performances fluctuating about ability, so that performances far from the mean reflect abilities that are closer to the mean.

Searching for deans and soulmates

Several years ago, a small private college in the US had a nationwide search for a new dean. None of the internal candidates were deemed good enough but, from hundreds of external applicants, the search committee identified several who, based on their résumés and references, were invited to interviews held at neutral airports to keep the process confidential. The three candidates who most impressed the search committee were invited to the college for two days of meetings with the faculty, administration, staff, and students.

The search committee was bursting with enthusiasm for these three godlike candidates. However, each candidate came and went, and each was disappointing relative to the pre-visit hoopla.

Disappointment is almost inevitable, in that the three candidates who appear to be the best are almost surely not as good as they seem to be. Regression to the mean also explains why internal candidates are at an inherent disadvantage. Someone who has been at a college for 20 or 30 years does not have very many hidden virtues or warts. Unlike the largely unknown external candidates, with an internal candidate what you see is pretty much what you get.

The same is true of our search for soul mates. Everyone looks for different things, so let's call it "pizzazz." Of the dozens, or hundreds, or thousands of people we meet, a few will stand out. When we see signs of pizzazz and summon the courage to get to know this person better, we are usually disappointed. The bad news is that this is just what we should expect. The good news is that we get to keep looking. The sobering news is that the other person probably feels the same way about us.

Don't be fooled

When a trait, such as academic or athletic ability, is measured imperfectly, the observed differences in performance exaggerate the actual differences in ability. Those who perform the best are probably not as far above average as they seem. Nor are those who perform the worst as far below average as they seem. Their subsequent performances will consequently regress to the mean.

This does not mean that the best performers are jinxed, only that their exceptional performances were assisted by good luck. Nor does regression to the mean imply that abilities are converging to the mean and everyone will soon be average, only that extreme performances rotate among people who experience good luck and bad luck.

It is indeed true that we encounter regression to the mean almost every day of our lives. We should try to anticipate it, recognise it, and not be fooled by it.

About the authorGary Smith is an economist and author of numerous textbooks and academic papers. This is an edited extract from his first book for general readers, Standard Deviations, published by Duckworth Overlook.